Presentation on theme: "Ontario Psychological Association Accounting for your Private Practice Presented by: Regina Baezner, CPA, CA, Partner Andrea Guenther, CPA, CGA,"— Presentation transcript:
1 Ontario Psychological Association Accounting for your Private Practice Presented by: Regina Baezner, CPA, CA, Partner Andrea Guenther, CPA, CGA, Senior Manager February 19, 2015
2 Agenda Taxation 101 Employee vs. self-employed Incorporation Accounting 101Record keepingComplianceLevels of assurance
3 Employee vs. Self-employed Advantages:CPP, EI, Income tax and other benefits deducted at source (someone else does the calculations)No compliance record keeping requirementDisadvantagesLimited ability to claim professional expensesMinimal control over your work environmentAdvantagesClaim professional expensesControl your work environment, whom you work with, hours of workability to earn more incomeDisadvantagesRequires more record keeping to track professional expensespractice management
4 Self-employed or running a business – record keeping
5 IncorporationWho can incorporate?Health professionals regulated under the Regulated Health Professions Act.
6 Who can incorporate? Regulated Health Professionals in Ontario Acupuncturist/Traditional Chinese MedicineAudiologistsChiropractorsChiropodists and PodiatristsDental hygienistsDental surgeonsDental technologistsDenturistsDieticiansKinesiologistsMassage therapistsMedical laboratory technologistsMedical radiation technologistsMidwivesNursesOccupational therapistsOpticiansOptometristsPharmacistsPhysicians and surgeonsPhysiotherapistsPsychologistsRespiratory therapistsSpeech language pathologists
7 Who can incorporate? Regulated Health Professionals in Ontario Professional Corporation shareholder restrictionsAll of the issued and outstanding shares of the corporation must be owned by one or more members of the same profession.All officers and directors must be shareholders.Specific to dentists and medical doctorsAre permitted to have family members own non-voting shares.Spouse must own shares directly.A trust for minor children may own shares.Adult children must own shares directly.\
8 Who should incorporate? Establish type of income firstFee for service income - qualifiesEmployment income – does not qualifyFactors to considerAge (how many more years will you be practicing?)Family dynamic (do you have a spouse and children?) Not as relevant to psychologists as cannot have family members own shareholders. However can be combined with family income levels and amount of earnings taken out of the corporation in a given year.Lifestyle (what are your personal consumption needs?)Resident status - are you and your fellow shareholders Canadian residents?
9 Why should you incorporate? Key benefitsTax-efficient income deferral;Tax-efficient corporate distributions;Limitation of liability (in certain circumstances); andOther benefits
10 Tax-efficient income deferral Ontario Budget changes impacting 2014 planningIntroduction of new personal tax brackets in Ontario$136,270 to $150,000 (46.41%)$150,000 to $220,000 (47.97%)$220,000 and above (49.52%)Previously:$136,270 to $514,090 (46.41%)$514,090 and above (49.52%)
11 Example - tax deferral through a corporation Professional earning $500,000 net per yearAmount required for personal needs (pre-tax): $300,000Tax deferral = $67,836
12 Tax- efficient corporate distributions Full discretion on future distributionspay dividends in years where family income dropsMaternity/PaternitySicknessFellowshipsRetirementon retirement - manage distributions with your other sources of retirement income including pensions and RRIF's.On retirement, the professional corporation would be deregistered and used as investment corporation. Can then be used as a vehicle for retirement income.
13 Dividend or Salary All dividend strategy ProsNo CPP costs for the health care professional and theprofessional corporation2015 Maximum annual cost $2, x 2 = $4,959.90EHT exposure (salaries >$450,000)More cash available for corporate investing/insurance structuresConsindividual can no longer contribute to RRSP'sWill reduce or eliminate the ability to collect CPP in the future
14 Limitation of Liability Professional LiabilityNo limited liability protection provided by the corporationVoting shareholder(s) and corporation are jointly and severally liableBusiness liabilityLimited liability protection is provided by the corporation (assuming no personal guarantees).Examples of business liabilities include:trade liabilities, employment contracts, lease liabilities and non-guaranteed loans.
15 Other Benefits Utilization of cheaper corporate dollars to pay Club/golf memberships with a business purposeLife insuranceMeals and entertainmentNon deductible penalties and interestRepayment of debtCapital gains exemption (discussed later)Individual Pension Plans (IPP) and Retirement Compensation Arrangements
16 Costs of incorporation – initial set-up There are costs and complexity associated with incorporation.On start-up consider:legal costs to form the corporationapplication for a certificate of authorization for a Health Profession Corporation and annual renewalconsultation with lawyer, accountant and financial advisor before incorporating
17 Costs of incorporation – ongoing ongoing legal and accounting feesadditional administrative burden, for example:corporation's record keeping and bookkeepingcorporate tax installmentsannual corporate returnsneed for separate bank accountscorporate minute book upkeep, such as directors' resolutions, annual meetings, etc.
18 Accounting 101 Choosing a trusted advisor/accountant Business registration with Canada Revenue Agency (CRA) and your business number(s)Record KeepingAccrual accounting vs. cash basis accountingAccounting SoftwareCompliancePayrollTax
19 Choosing a trusted advisor Importance of having an accountant you feel comfortable with and trustAdvisor should be familiar with and have experience with medical/professional practicesdepending upon your level of bookkeeping knowledge you may need a bookkeeper as well as an accountant
20 Business Registration with Canada Revenue Agency (CRA) http://www Registration available by mail, phone or InternetBusiness numbers may be required for the following business accounts:Payroll program accountCorporate income tax program accountGST/HST program accountAnnual information returns (i.e. Return of Investment Income (T5))
21 Record Keeping Cash basis accounting Accrual accounting Sales are recorded when cash/payment is received.Expenses are recorded when payment is made.Accrual accountingSales and expenses are recorded when they occur, even if no cash changes hands.Example:Sales are recorded when service is provided; payment for the services may not yet be received.
22 Record Keeping Commonly used Software for record keeping: Excel spreadsheetsQuickBooksSimply Accounting
24 Record Keeping – basic monthly processes Monthly reconciliationsBankCredit card(s)Accounts receivableAccounts payableMonthly reasonableness checklook for unusual balances in accountslook for unusual amounts on the income statement and balance sheet
25 Record Keeping Other considerations: Outsourcing bookkeeping functions Separate "business" bank accountSeparate "business" credit cardsCorporationsIssues related to shareholder advances
26 Compliance Payroll For yourself and your employees Payroll deductions – employer costsCPPMaximum pensionable earnings for 2015 is $53,600Maximum employee contribution for 2015 is $2,479.95; employer required to match CPP contributions
27 Payroll (continued) Employment Insurance (EI) Shareholder's with a percentage interest >40% are EI exemptEmployee maximum insurable earning for 2015 is $49,500Employee maximum annual premiums for 2015 are $930.60; employer match is 1.4 times the employee's premiumsFederal and Provincial TaxDeduction based on employee completing form TD1 Form and CRA tax tables
28 Payroll (continued) Remitting Payroll Deductions Based on average monthly withholding amounts (AMWA)Generally, where AMWA are < $25,000 (starting in 2015); remittance are due on or before the 15th day of the month after the month the employees are paid.Accelerated remittances are required where the AMWA is >$25,000Threshold 1 - $25,000 - $99,999 – Payments due the 25th of the same month for amounts paid in the first 15 days and 10th of the following for payroll paid from the 16th to the end of the monthThreshold 2 - $100,000 or more AMWA – payments due within 3 days of the payment based on 7th, 14th, 21st and through to the last day of the month
29 Payroll (Continued) Employer Health Tax (EHT) Where annual payroll is >$450,000; requirement to register and file annual returnMonthly installments required where annual remuneration is > $600,000Workplace Safety and Insurance Board (WSIB)Registration required by most businessesRecommend contacting WSIB to determine registration requirementPremiums are paid by the employerRates based on guidelines set by WSIB2014 rate for Office of Psychologists = 0.73/$100 of remuneration paid
30 Payroll (continued) Salary vs. Dividend Salary allows for RRSP contributions, whereas dividend payments do notIncorporated practicesMay want to consider salary/dividend mix, depending on individual cash requirementsconsult with your professional advisor
31 Compliance Corporations: T2 Corporate Tax Return due 6 months after your year endwhere there is a balance due, amount to be paid within 3 months of the year-end to avoid non-deductible interest chargesInstallment payments due quarterly or monthly
32 Compliance Individuals: T1 Personal Tax Return Employee – due April 30thLimited deductions may include membership dues (where not reimbursed; otherwise Form T2200 may be required)Tuition tax creditsSelf-employedDue June 15thWhere there is a balance due, amounts to be paid by April 30th to avoid non-deductible interest chargesThere is a requirement to pay quarterly installments after the first year, based on the prior year taxes payable
33 Compliance Harmonized Sales Tax (HST) Registration required where total taxable sales are > $30,000Most health, medical, and dental services performed by licensed physicians or dentists for medical reasons are considered exempt servicesNo HST charged and no claim can be made for input tax credits (ITC's)Medical reports are excluded from the exempt suppliesTherefore, HST registration required where taxable supply is > $30,000ITC's claimed must only be related to the writing/producing medical reports; portion of overhead costs may be possible
34 Levels of assurance Auditor's report Review engagement report Compilation report (aka - Notice to Reader)
35 Levels of Assurance Auditor's Report Based on Generally Accepted Auditing Standards (GAAS)Provides highest level of assurance, also the most expensivestatements must be prepared in accordance with generally accepted accounting principles.Financial statements include Balance sheet, Income statement, Statement of cash flows and note disclosuresBased on materialityA misstatement in financial statements is considered to be material if the decision of a person who is relying on the financial statements would be changedAuditor provides an opinion on whether the financial statements are presented fairly, in all material respects in accordance with the disclosed basis of accountingNotes are included with CRA filings
36 Levels of Assurance Review Engagement Report Negative assurance only – no opinion givenStates only that:Based on my review, nothing has come to my attention that causes me to believe that these financial statements are not, in all material respects, in accordance with Canadian GAAP."Procedures consist primarily of enquiry, analytical review and discussion.Still requires adherence to accounting standards and full financial statements, including notes.Notes are included with CRA filingsOften the lowest level of assurance accepted by banks and other lenders
37 Levels of Assurance Compilation Report (Notice to Reader) No assurance providedReaders are cautioned that these financial statements may not be appropriate for their purposes.Acceptable to CRACan apply accounting standards or not, for example on a cash basis not accrual basishowever may result in taxable adjustments if audited by the CRA
38 Can the practice be sold? Sale of PracticeMore common in dental or other practices, with a large capital investment in equipment and building / leaseholdsHowever may be possible for an established practice, that has a good reputation and good referral sourcesSale can also be in whole or in stages as new practitioner shareholders or associates are brought in over time and other shareholders retireConsult with a professional tax advisorCan be selling the shares or the "assets" (i.e. goodwill/customer lists) of the professional practice. Vendors and purchasers are often at cross –purposes as to which
39 Sale of sharesCRA has stated that shares of a professional corporation will be eligible for the $800,000 exemption providing the small business corporation conditions are met, and the shares are qualifying small business corporation shares and they can be sold for value.Utilization of one individual's capital gains exemption can result in $198,000 in tax savings. This saving is multiplied over the number of shareholders.
40 Sale of shares Capital gains exemption $800,000 on QSBC may qualify for sale of small business corporationrules are complexkey is the assets held at time of salein order to be sure to qualify at the time of sale, practitioners are cautioned to deal with their professional tax advisor well in advance, at least a period of two years or more prior to sale.
41 DisclaimerThis material deals with complex matters and may not apply to particular fact situations. As well, this material and the references contained therein reflects laws and practices which are subject to change. For these reasons, the material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter.Although the material has been carefully prepared and reviewed, no persons involved in the preparation of the material accepts any legal responsibility for its contents or for any consequences arising from its use.
42 Thank you Regina Baezner , CPA, CA Andrea Guenther, CPA, CGA Partner Grant Thornton LLP Suite 200 | 15 Allstate Parkway | Markham | ON | L3R 5B4T | F E Regina.Baezner.ca.gt.comW www.grantthornton.caAndrea Guenther, CPA, CGASenior Manager Grant Thornton LLP Suite 200 | 15 Allstate Parkway | Markham | ON | L3R 5B4T | F W www.grantthornton.ca